Gold hits 7-month low on worries on fate of Fed's stimulus

Feb 21 2013, 10:00 IST
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U.S. gold fell to a more than seven-month low of $1,554.3 earlier in the day, and recovered to $1,560.40.  (Reuters) U.S. gold fell to a more than seven-month low of $1,554.3 earlier in the day, and recovered to $1,560.40. (Reuters)
SummaryU.S. gold fell to a more than seven-month low of $1,554.3 earlier in the day, and recovered to $1,560.40.

Gold dropped to a seven-month low on Thursday, its third straight session of weakness, as signs that some Federal Reserve officials were reconsidering the scale and duration of the U.S. monetary stimulus programme spooked investors.

A number of Fed officials think the central bank might have to slow or stop buying bonds before seeing the pickup in hiring the program is designed to deliver, according to minutes of the central bank's policy meeting last month which were released on Wednesday.

The Fed's three rounds of quantitative easing played an essential role in gold's record-breaking rally in recent years, as the metal's inflation-hedge appeal attracted investors worried about currency debasement as a result of rampant cash printing by central banks.

But the sentiment started to shift late last year when signs emerged that the U.S. economy started to recover, raising doubts on the necessity of large-scale quantitative easing and cooling sentiment in gold.

"It is all about the Fed," said a Shanghai-based trader, "Physical material buyers may jump in at this level, but investors are mostly cautiously watching the next move."

The next level of support for gold will be around $1,527, the lowest in 2012, he said.

A firmer dollar added to the pressure. The dollar index jumped to a three-month high in the previous session, weighing on dollar-priced commodities as a stronger greenback makes them more expensive for buyers holding other currencies.

Spot gold dropped as much as half a percent to $1,554.49, its lowest since July. It had since pared some losses to $1,560.66 by 0252 GMT. It fell 2.6 percent on Wednesday, posting the biggest daily drop in a year.

U.S. gold fell to a more than seven-month low of $1,554.3 earlier in the day, and recovered to $1,560.40.

Technical analysis suggested spot gold could extend losses to $1,538-$1,548 an ounce during the day, as indicated by its wave pattern, said Wang Tao, Reuters market analyst.

Tumbling prices attracted buying interest in the physical market, but it was not enough to offset selling from speculators.

"There is a lot of physical buying in the region," said Brian Lan, Managing Director at GoldSilver Central Pte Ltd in Singapore, adding that in the longer run gold still remains attractive.

"As long as the problems in U.S. and European economies are not fully resolved and interest rates remain low, the macroeconomic

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